Fed officials press promise of complete recovery before 'punch bowl' disappears

WASHINGTON (Reuters) -Top Federal Reserve officials on Thursday continued a barnstorming effort to tell investors and the public at large that the U.S. central bank’s expansive support for the economy will stay in place until a quickening recovery has reached deep into the society and is effectively complete.

The Fed since August has been tuning its formal, technical language to make that point, but in appearances this week policymakers have framed those promises in more colloquial terms and have done so in interviews with more widely broadcast media than the financial outlets they usually rely on.

In an interview with National Public Radio’s “Morning Edition” program on Thursday, Fed Chair Jerome Powell said that even with the economy rebounding faster than expected, any change in monetary policy would happen “very, very gradually over time and with great transparency, when the economy has all but fully recovered.”

Fed Vice Chair Richard Clarida, speaking on Thursday to the Institute of International Finance, said the central bank will stay in the game until the recovery is “well and truly complete.”For Fed Governor Lael Brainard, the turn of phrase used earlier in the week was “resolute patience” before any shift in monetary policy, while San Francisco Fed President Mary Daly said the central bank would show at least “a healthy dose” of patience.”We are not going to take this punch bowl away,” Daly said.

The message is being delivered at a moment when U.S. economic growth is set to surge at its highest annual rate since 1984. It represents on one hand a stunning comeback from fears of a looming depression triggered by the pandemic, but is raising concerns it may be too much of a good thing – with the risk of too high inflation or a financial bubble lurking, and a suspicion the Fed may eventually have to react with higher interest rates.

The job market may finally be gaining traction – new claims for unemployment fell by about 100,000 for the week ending March 20 – and Clarida said the country may return to full employment in a “relatively rapid” fashion. Fed officials have all but guaranteed higher inflation this year.

That fact has begun to generate some pushback, and not just among investors betting the Fed will have to raise interest rates as a way to curb inflation by discouraging investment and spending.

On Capitol Hill this week, Powell was peppered with questions from Republican lawmakers about whether the Fed risked losing control of inflation or financial markets by leaving interest rates low even as a boom develops, not to mention continuing to pump $120 billion into the financial system each month with bond purchases.

The answer, so far, is that guesses about where the economy might head after such a tortured year won’t substitute for seeing it happen on the ground so that the country can continue to claw back lost jobs and output.

FOCUS ON OUTCOMES

Richmond Fed President Thomas Barkin said in an interview with Reuters on Wednesday that the United States may well see economic growth remain above trend for several years given the amount of pent-up demand that has accumulated during the pandemic, and the amount of savings people have stored to eventually satisfy it.

But in terms of any change in Fed policy, “what matters is what outcomes we actually get,” Barkin said. “I am going to see where we go. I am not trying to overthink the date (of any policy change). I am trying to think about the outcome.”

In comments on Wednesday to the Japan American Society of Chicago, Chicago Fed President Charles Evans similarly said the central bank will not pull back just because the economy seems to healing.

“We are not just going to backtrack if we hope, and have a forecast, that we are close,” he said.

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